Audit: No one told San Carlos school trustees that $1.3 million loan went to superintendent before their approval

n Report also found that San Carlos schools' CEO wrote a $36K personal check to cover superintendent's house sale deposit

By Bonnie Eslinger Daily News Staff Writer

Posted:
03/22/2014 03:00:00 AM PDT

Updated:
03/23/2014 06:32:54 PM PDT

SAN CARLOS -- Schools Superintendent Craig Baker and Chief Operations Officer Robert Porter apparently failed to "comprehend" that a $1.3 million home mortgage loan for Baker shouldn't have been made until the school board approved it in open session the next day, an independent audit has found.

What's more, according to the audit, Porter neglected to tell the school board before it approved the loan that district funds had already been transferred the day before.

And, the audit states, Porter at one point wrote a personal $36,000 check to cover the house sale deposit for Baker, who is his boss.

The report was commissioned last year by the school board in the wake of public criticism of how the loan was handled. It was posted on the district's website, along with a letter from school board President Adam Rak, who said that funding the loan in advance of the meeting was merely an error.

"This mistake does not manifest any intent to engage in wrongdoing," Rak wrote.

Attorney Jean Savaree, who did the audit, also uses the word "mistakes" in describing district officials' handling of the financial transaction.

"Nothing illegal, nefarious or improper was done," Baker said. "Mistakes were made. We're moving on to do the real work of the district."

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But former school board President Beth Hunkapiller, who resigned from the board after a majority of her fellow trustees initially balked at the idea of an investigation, said she isn't so sure it's just a case of mistakes being made.

Hunkapiller said she felt the loan was set up by Baker from the beginning to minimize public scrutiny and interference.

"He just must have wanted a way to ensure the transaction went through quickly without a lot of red tape," Hunkapiller said.

During closed-session performance review discussions with Baker last June, the board "agreed to consider" giving Baker a "housing assistance loan" so he could move from Redwood City into the district's boundaries, according to Savaree's report.

By July, Baker began his search for a house. In a letter dated July 12, 2013, Hunkapiller advised prospective house sellers that the board intended to approve the loan at a future meeting.

But a vote on the loan wasn't scheduled until Sept. 12, because "the Board followed its traditional practice of a necessary recess for the month of August," Savaree wrote. Although the board had a special meeting in July, it couldn't approve the loan then because state law requires discussions of salaries and other compensation to occur at regularly scheduled meetings.

On Aug. 28, Baker told Porter that he planned to make an offer on a home in San Carlos and if it's accepted "he would need funds released for a deposit," Savaree wrote.

When the offer was accepted, Porter wrote a personal check on Sept. 2, 2013, for $36,000 to cover Baker's deposit, the audit states. Escrow on the sale was to close Sept. 13, the day after the school board was to consider approving it.

Then on Sept. 3 and Sept. 4, emails were exchanged between Porter, Baker and a Wells Fargo representative "regarding the appropriate rate for the loan." A rate of 2.65 percent was agreed upon, Savaree wrote.

On Sept. 5, Baker told Porter there "had been confusion" about when escrow was to close and the correct date was Sept. 11. Porter then contacted the San Mateo County Office of Education, which handles the district's funds, and requested that it transfer the money on Sept. 11, Savaree wrote.

On the morning of the Sept. 12 board meeting, Baker sent Hunkapiller an email saying he had closed escrow the day before. But when Porter brought up the loan at the school board meeting that night, "the Board and public were not advised that the funds for the housing assistance loan had been transferred or that escrow had closed the previous day," Savaree wrote.

Neither Baker nor Porter told the board about the early fund transfer "because they believed it was the Board's intent to approve the loan" and they "saw the public meeting as a formality," Savaree wrote.

After three district residents complained at the meeting that the deal hadn't been publicly vetted and questioned the principle of spending school funds for Baker's personal use, the board voted 5-0 to approve the loan. In the days that followed, board members Carol Elliott, Kathleen Farley, Seth Rosenblatt and Rak learned that the loan was made to Baker before their approval, Savaree wrote.

"Despite having been advised of the need for Board action to approve the loan, neither Superintendent Baker nor Chief Operations Officer Porter fully appreciated the fact that the housing assistance loan had not and could not have been approved by the Board until it acted on September 12, 2013. Because of this failure to comprehend this fact, Chief Operations Officer Porter erred in failing to advise the Board that the close of escrow had been advanced from September 13 to September 11, 2013 and in initiating the transfer of funds prior to the Board's action on September 12, 2013," Savaree wrote.

In her recommendations, Savaree said district actions that benefit a specific employee should be staffed by independent third parties to insure an "arms length" transaction and "the avoidance of any perceived conflicts of interest or ethical dilemmas."

In addition, she recommended that district staff communicate with the board "in a more timely and effective manner" and suggested that the board be more involved in major decisions. Board and staff training already in the works on fiscal policies and procedures, conflicts of interest and ethics should help, she added.

Baker repaid the $1.3 million loan, plus $4,087 in interest, by Nov. 4, according to a separate financial audit also commissioned by the board. That review, done by Robert Wilkinson, a certified public accountant with the firm Wilkinson Hadley, King and Co., LLP, also found that the 2.65 percent interest rate "was at or above the market rate for a similar type loan."

Baker said the audit offered no new insight. He said Porter "thought he had informed the board" that the loan had gone through the day before it voted.

Porter did not respond to a request for comment on the audit.

Hunkapiller said she is still troubled by the whole affair and wishes the investigation had dug deeper.

"Superintendents all over this state are highly cognizant of the duty that public business is done properly with government code honored, observed and followed," she said. "I don't know how to explain how that wasn't fully operational in him."

Hunkapiller said she takes responsibility for not being more watchful. Baker initially indicated he didn't think he'd be able to find a home in San Carlos and that was the rationale given for not including a loan in the contract renewal the board approved in August, she said.

Hunkapiller said she also feels badly that the board and Baker put Porter in a position of determining the loan's interest rate with Baker and perhaps feeling pressured to write a personal check for $36,000 on behalf of the superintendent.

Baker "should have been more protected from undue conflict," Hunkapiller said.

Asked if the negotiations between Baker, Porter and Wells Fargo to set the loan rate were a conflict of interest because Baker is Porter's boss, County Chief Deputy Counsel Kathryn Meola, who represents the district, said nothing illegal occurred.

"Similarly, the personal loan from Robert to Craig also did not violate any specific conflict of interest laws," Meola wrote in an email.

Rak responded to a phone call and email request for comment with an email that said he was busy with meetings and hoped that Meola's response was sufficient.

Peter Scheer, executive director of the First Amendment Coalition, a nonprofit focused on free speech and government transparency concerns, said the way the transaction was handled sounds "murky."

"Whenever you're providing a gift or financing over a million dollars to one employee, it's a good idea to dot all your i's and cross all your t's," Scheer said.